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Mar-23 External Trade: Services provide resilience

19 Apr 2023



  • India’s aggregate trade deficit (including services) widened to USD 6.1 bn in Mar-23 from USD 3.2 bn in Feb-23. This was primarily on account of the merchandise trade deficit rising again in Mar-23 to USD 19.7 bn after subsiding in Jan-Feb to around USD 16 bn even as services trade surplus is estimated to have improved somewhat to USD 13.7 bn from USD 13.1 bn.

  • In an usual ramp-up of year-end activity, both merchandise exports and imports expanded sequentially in Mar-23. However, the sequential expansion in Mar-23 was weaker in comparison to Mar-22 levels, resulting in both exports and imports registering a contraction on annualized basis.

  • Annualized growth in services exports and imports also slowed down considerably on adverse statistical base effect, banking sector turbulence in US and Europe, and slowdown in overall demand.

  • India’s merchandise export target for FY23 was around USD 470 bn against which it clocked almost USD 447 bn which was still a 5.8% YoY growth over FY22. But what has really supported India’s resilient external position has been the significant uptick in gross services exports by 26% from USD 250 bn (FY22) to USD 315 bn in FY23. The buoyancy in services exports enabled India to exceed the overall export target of USD 750 bn (actuals ~762 bn).     

  • While global trade is expected to moderate in 2023, lower commodity prices, resilience in services exports, moderation in domestic demand, and redrawing of geopolitical trade networks are factors that would support India’s current account deficit.

  • We expect current account deficit to narrow towards 1.4% of GDP in FY24 from an estimated 2.0% in FY23.

India’s merchandise trade deficit widened to USD 19.7 bn in Mar-23 from USD 16.2 bn (revised lower from USD 17.4 bn reported earlier). In contrast, services trade surplus is estimated* to have increased to USD 13.7 bn in Mar-23 from USD 13.1 bn in Feb-23. The total trade deficit increased to USD 6.1 bn in Mar-23 from USD 3.2 bn in Feb-23.

Merchandise Exports

Merchandise exports expanded sequentially by 3.7% MoM to a 9-month high of USD 38.4 bn in Mar-23, a typical year-end phenomenon. However, the sequential expansion was subdued compared to a robust 20.0% MoM jump seen in Mar-22 amidst the increased global headwinds and the ongoing global slowdown. As such, on annualized basis, growth in exports weakened to a 34-month low of -13.9% YoY.

  • On sequential basis, increase in exports in value terms was led by Engineering Goods, Chemicals & Products, Electronics, Petroleum Products, Agri & Allied Products, and Textiles. On the other hand, there was a sequential drag on account of lower exports of Gems & Jewellery.

  • Electronic goods clocked their monthly record high of USD 2.9 bn in Mar-23 (recording a growth of 57.4% YoY, the highest among all key sub-categories of exports). The sector has been one of the major beneficiaries of government’s PLI scheme.

  • Cumulative merchandise exports in FY23 stood at a record high of USD 447.5 bn, marking an increase of 5.8% over FY22 levels.

    Merchandise Imports

    Sequentially, Merchandise imports expanded sequentially by 9.1% MoM to a 3-month high of USD 58.1 bn in Mar-23. However, the sequential expansion was moderate compared to the 12.9% MoM jump seen in Mar-22. As such, on annualized basis, growth in imports weakened to a 28-month low of -7.9% YoY.

    • In value terms, the sequential expansion was led by Electronic Goods, Gems & Jewellery, Petroleum Products, Ores & Minerals, Chemicals & Products, Plastic & Rubber Articles, and Machinery Items. Project Goods was the only key category that saw a decline in import value on sequential basis, reinforcing the lack of momentum in private sector capital expenditure.

    • NONG (non-oil-non-gold) imports, a key indicator of domestic demand, rose encouragingly to a 3-month high of USD 38.7 bn in Mar-23. However, on annualized basis, the growth in this category slipped into negative territory to -5.4% YoY from 0.5% in Feb-23, highlighting the growth headwinds.

    • Cumulative merchandise imports in FY23 stood at a record high of USD 714.2 bn, marking an increase of 16.5% over FY22 levels.


    * The latest data for services trade released by the RBI is for Feb-23. Data for Mar-23 is an estimation by the Ministry of Commerce, which will be revised based on RBI’s subsequent release.

    Services trade is estimated to have maintained its pace in Mar-23, with exports and imports at USD 27.8 bn (up from USD 27.4 bn in Feb-23) and USD 14.1 bn (down from USD 14.4 bn in Feb-23) respectively. 

    • On annualized basis, growth in exports slipped to a 25-month low of 3.2% YoY in Mar-23 from 28.8% in Feb-23. While this is indicative of adverse statistical base effect coming into play, role of adverse global factors (gradual slowing down of global demand coupled with heightened uncertainty in Mar-23 from the banking sector turmoil in US and Europe) cannot be ruled out.

    • Meanwhile, annualized growth in imports too slipped to a 26-month low of -8.3% YoY in Mar-23 from 10.8% in Feb-23. While this too is indicative of adverse statistical base effect and to an extent a slight moderation in crude oil prices, moderation in domestic demand could also be playing a role.

    Despite the recent moderation, services exports and imports touched a record high of USD 319.7 bn and USD 177.5 bn in FY23, marking a robust expansion of 25.6% and 20.7% over FY22 levels respectively.


    India’s trade dynamics went through a roller coaster ride in FY23. First half of the year saw the dominance of elevated international commodity prices as well as supply disruptions on account of the Russia-Ukraine war. With India being one of the major commodity importers, this gave rise to concerns over its ballooning merchandise trade deficit, which incidentally touched a record monthly high of USD 28.0 bn in Sep-23.

    However, despite the persistence of geopolitical uncertainty, a lot has changed since then:

    • Supply disruptions have gradually eased with reopening of Chinese economy over Dec-Jan further providing support to global value chains. The New York Fed’s Global Supply Chain Pressure Index fell in Mar-23 to its lowest levels since 2009. This is now indicative of near normalization of global supply chains after experiencing major setbacks during 2020-2022.

    • Accelerated pace of monetary tightening by most central banks in the world started to usher in a slowdown in global demand. While this helped in lowering commodity prices with India being a key beneficiary (from its peak in Jun-22, the average monthly value of CRB commodity index fell by ~14% as of Mar-23), it is also dampening demand for India’s exports (which moderated to USD 216 bn in H2 FY23 from USD 232 bn in H1 FY23).

    • Russia’s share in India’s import basket has steadily climbed from 2.1% in Jan-22 to 9.5% in Feb-23. Since most of this is on account of crude oil, which is procured at a discount of USD 25-30 pb compared to Brent, this is increasingly becoming an important source of saving for India’s merchandise trade deficit.

    • There is a structural improvement in services exports amidst post pandemic thrust on digitization and cost optimization globally. On BoP basis, services exports are estimated to have touched a record high of 10.1% of GDP in Q3 FY23.

    As such, India’s net trade deficit eased considerably to USD 46.3 bn in H2 FY23 from USD 78.3 bn deficit in H1 FY23. This has taken the pressure off the current account deficit, which we expect to print at a comfortable level of USD 68 bn (2.0% of GDP) in FY23.

    Going forward, the aforesaid factors are expected to assert themselves further along with expectation of moderation in domestic growth, which would lower demand for imports. As such, we expect current account deficit to narrow towards USD 53 bn (1.4% of GDP).

    Table 1: Highlights of merchandise trade balance

    Note: Numbers may not add up due to rounding off and revision in headline exports and imports

    Chart 1: Global supply chain pressures have largely normalized

    Chart 2: Services exports pulling up the overall trade deficit